Perpetual in acquisition mode

Perpetual is willing to break away from its value investing heritage as it looks for new investment managers to add to its lineup.

Perpetual Investments, which brings almost half of the company's operating profits, reported a 29% slump in its profits to $32.6 million as its value-style funds were hit hard by the markets and institutional investors retreated.

"[We have] a very large appetite and are very keen to add global managers. We are pretty open-minded but with a set of criteria," Perpetual chief executive Rob Adams said.

Perpetual Investments currently has $27 billion across about 20 strategies. These are managed by four investment teams across Australia equities, global equities, fixed income and credit, and multi-asset.

Adams said the business is likely to look at firms investing in: global emerging markets, global listed infrastructure and unlisted assets such as private market debt. Its manager selection criteria include a good track record of performance, capacity and investor interest.

"We are long and strong on domestic assets. Our preferred stance is to add to our global capability," he said.

He added that Perpetual's current investment teams will stick to their value investing style, which the company expects to come back in favor as the bull run matures. But it will look for new managers across all styles of investing.

"I wish I could be more prescriptive on the timeline. We have come quite close acquiring one or two firms in the past six months but we don't want to feel rushed into it," he said.

Pzena Investment Management

One of the acquisition prospects Perpetual chased, according to media reports, is US-based Pzena Investment Management which has US$38 billion in assets under management.

Adams denied Perpetual is currently looking at it actively.

"I wouldn't believe everything I read.We are not in current discussions with Pzena," he said, declining to confirm if Perpetual pursued it at an earlier point in time.

Rules out multi-boutique structure

Adams took over as the chief executive in September last year and has a long history in acquisitions in funds managements businesses.

He headed Challenger's multi-boutique business Fidante Partners when it was first established in 2004 and did the first 11 deals there, including Kapstream, Greencape, Novaport.

But the multi-affiliate model, where a company takes a minority stake in an investment management business and/or shares revenue with the investment manager, is not of interest at Perpetual Investments.

"It is a reasonable model but we are not likely to [pursue it]," he said.

"Given the strength of our brand, it makes more sense for us to take a controlling stake."

Investor mix, adviser numbers

Of the $27 billion current under management at Perpetual Investments, about $7 billion is now from institutional investors after outflows during the financial year.

The remaining $20 billion is split as about $14 billion from the intermediary channel (through master trust and wrap), $4.9 billion through direct retail or adviser-led (but not master trust and wrap) channels and the finally, the listed vehicles at the margins.

Adams said it will continue to look at adding listed vehicles for right strategies and there "may well be a chance" of considering an extra raise for its credit LIT launched this year which closed oversubscribed in March.

He said the company will continue to be focused on the institutional channel as well. It may see a slight change in assets mix as new managers join with institutional side going up quicker than the retail side.

Perpetual's total revenue across the three business segments was 4% lower at $514 million. Both the investments and private wealth business reported a dip in their profits before tax but the corporate trust services business profit grew by 12% during the year.

Perpetual Private's 11% lower profit before tax of $41.2 million was largely impacted by increased investment in strategic initiatives to support future business growth, even though inflows were strong.

The company's private wealth business added five advisers in the first half and has six others ready to join.

It now has 59 advisers that cater to high net worths with more than $2 million to invest, business owners and medical practitioners.

Adams says these channels have driven growth so far (the segment has positive net flows for past three years at least) and will continue to drive it, aided by the assets that new advisers bring.

"We are not lead by [adding adviser numbers] at all. We have set the bar very high for advisers who want to join us," he said.

Read more: Perpetual InvestmentsPzena Investment ManagementFidante PartnersPerpetual LimitedRob Adams
Link to something OLX06E3u